Report on revision of the bankruptcy disqualification rules: On July 5, 2023, the Danish Bankruptcy Council has submitted a report containing proposals for an adjustment of the current rules on bankruptcy disqualification.
According to the current rules, bankruptcy quarantine can be imposed if a person has participated in the management of the bankrupt company and is considered unsuitable to participate in the management of a business enterprise due to grossly irresponsible business conduct.
The rules on bankruptcy quarantine are intended to protect against bankruptcy riots.
5 selected proposals for adjustments from the bankruptcy court
1. clarifications in section 157(1) of the Bankruptcy Act
The Danish Bankruptcy Council proposes that the provision should contain a non-exhaustive list of typical cases of business conduct that is grossly irresponsible and thus in itself justifies bankruptcy disqualification. For example:
- Material breach of obligations under tax, customs and duty laws. Tax, customs and duty legislation
- Significant breaches of bookkeeping and accounting obligations
- Non-commercial transactions that have contributed to a significant reduction in the debtor's asset base to the detriment of creditors
- Participation in strawman construction
- Aiding and abetting the continuation of operations for an extended period of time after the time when the director must have realized that continuation would result in a material loss to creditors.
2. Extension of legal effect abroad
The Danish Bankruptcy Council proposes that the legal effect of bankruptcy disqualification be extended to include participation in the management of a business enterprise in countries other than Denmark.
3. Graduation of the length of the quarantine period
The Bankruptcy Council proposes that it should be possible, in exceptional cases, to set a quarantine period of up to 5 years where there are special reasons for doing so. Under the current rules, bankruptcy quarantine can be imposed for up to 3 years.
4. Adjustment of settlement between the trustee and a member of management who is subject to bankruptcy quarantine
The Bankruptcy Council proposes that a new provision be added to the Bankruptcy Act on the trustee's right to reach a settlement on the length of the quarantine period during a bankruptcy quarantine case when it is deemed reasonable. It must be possible to reduce the quarantine period to one year and make it conditional on, for example, payment of an amount to the creditors that fully or partially compensates them for the loss they have suffered.
5. Possibility of imposing bankruptcy quarantine in connection with Restructuring
The Danish Bankruptcy Council proposes that it should be possible to impose a bankruptcy quarantine in reorganization situations that end with a confirmed reorganization proposal containing a provision on compulsory composition. In practice, this will ensure that a Restructuring can be implemented in situations where Restructuring would otherwise be voted down due to a wish among the creditors that the management be subject to a bankruptcy quarantine.
You can find the entire Ministry of Justice's "Report on the revision of the bankruptcy disqualification rules"
Considerations on private access to the bankruptcy disqualification register
The Bankruptcy Council concludes that it must be a political decision to what extent private individuals should have access to the bankruptcy disqualification register. The Bankruptcy Council proposes four different models that could give private individuals access to this information. The Council finds that a model where individuals should be able to request the information in the register is the most flexible solution. At present, only a few public authorities have access to the Bankruptcy Disqualification Register.
The report has been submitted for public consultation. After the summer vacation, a political position will be taken on the Bankruptcy Council's proposal. At CLEMENS, we follow the work of the Bankruptcy Council closely and will follow up on this when a possible bill containing the Bankruptcy Council's proposal for adjustments to the current rules on bankruptcy quarantine is adopted.
If you have any questions about the article or Restructuring and insolvency, you are alwayswelcome to contact Bo Christensen at boc@clemenslaw.dk or phone +45 8735 7502.
